Natural Gas Poised To Fuel More Hot Debate In Pa.

HARRISBURG, Pa. (AP) – Whatever happens in Gov. Ed Rendell’s final year in office, developing a state policy on the rapidly growing natural gas drilling industry is shaping up to be a major focus.

Two elements sure to generate heated debate for a second straight year in the Legislature are whether to tax the companies that extract methane from beneath Pennsylvania and whether to allow them to explore more of the state’s popular public forests.

Rendell, a Democrat, wants to help the industry become an important new economic engine for the state. But he also insists that the industry share the tax burden and help protect the environment.

“We’re trying to reach that balance,’’ he said Thursday.

Driving the debate are the state’s flagging tax collections and exploration companies’ hot pursuit of the Marcellus Shale gas formation, which some geologists believe could become the biggest in the nation.

Rendell is likely to reveal more about his approach when he unveils his 2010-11 budget on Feb. 9. But already, some rank-andfile House Democrats feel Rendell has betrayed them.

The House members fought last fall to limit an expansion of gas drilling on state forest land as budget negotiators sought new revenue to fill a multibillion-dollar, recession-driven shortfall in tax collections. They cite a reduction in drilling revenue projected for the year that started July 1 as evidence of their success.

However, only in recent days did they discover that Rendell agreed in October with top Senate Republicans that he would seek $180 million more from gas drilling in state forests – triple this year’s projection – to support next year’s budget.

“I view this as a double-cross from what we agreed to,’’ said House Finance Chairman David Levdansky, D-Allegheny. “This is not going to sit well with those of us in the House that care about the environment.’’

Any effort to tax the extraction of gas – on top of lease fees and royalties that the companies already must pay – would face a tough negotiation with Republicans, who say their opposition defeated Rendell’s proposal for a tax last year. Still, the Senate GOP majority has opened the door to that possibility at least a crack.

Of the more than 2 million acres that make up Pennsylvania’s state forests, 660,000 acres were under lease for gas production as of November. Last Tuesday’s lease sale locked in an additional 32,000 acres.

So far, the state has reaped more than $300 million by leasing forest land for Marcellus Shale drilling. All of that money is from leasing fees. State royalties from the sale of the gas is not expected to generate substantial revenue for several years.

Tuesday’s latest lease sale raised $128 million – more than double the $60 million budgeted. The extra $68 million will give the state a head start toward the $180 million promised in next year’s budget, Rendell said.

At a news conference last Thursday, the governor would not say how he intends to raise the rest of the money. Asked about a potential further expansion of gas drilling in the state forests, he said, “We’ll see.’’

At one point, Rendell seemed to make a case for more leasing, saying his administration has added more acres of state forest land than it has leased for drilling. Republicans support such an expansion, pointing to last Tuesday’s unexpectedly lucrative bidding for leases as a signal of unflagging interest.

But Rendell also suggested that a gas extraction tax could help achieve the state’s financial goals, even though Senate Republicans say that was not part of the October agreement.

Levdansky said he hopes to introduce a bill to stop additional leasing – at least the environmental impact of the drilling is better understood.

“We are rapidly approaching the point where we will have leased everything that is conceivable to lease,’’ Levdansky said, “and, you know, God isn’t making any more forest land.’’